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Hugo Boss expects stable sales growth in FY17

By Prachi Singh

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Business

Hugo Boss sales decline by 2 percent in currency-adjusted terms in 2016, while EBITDA before special items of 493 million euros (519 million dollars), the company said, reached top end of the forecast range. For the fiscal 2017, the company expects sales to remain largely stable on a currency-adjusted basis and expects EBITDA before special items to develop within a range of down 3 percent to positive 3 percent compared to the prior year.

Commenting on the company’s full year trading, CEO Mark Langer said in a media release, “The realignment is beginning to take effect and the first results are becoming visible. In particular, we managed to turn around our business in China. This year we will implement concrete measures of the strategy, which we decided upon last autumn. I am very confident that Hugo Boss will return to sustainable and profitable growth after this phase of stabilization."

Hugo Boss implements measures to drive profitability

The company said, cost discipline and rigorous discount management limited the negative impact on earnings. More than 100 million euros (105 million dollars) in costs and investments were saved. The company also worked on strengthening its position in core markets. In the US wholesale business, Hugo Boss withdrew from formats, which did not correspond with its brand positioning and in China, the company said, it completed the turnaround in the second half of the year.

The Group's sales dropped by 4 percent to 2,693 million euros (2,837 million dollars) in 2016. Adjusted for currency effects, this decrease was 2 percent. In Europe, sales in local currencies grew by 1 percent. The company said, an increase in the high single-digit range in Great Britain and growth in smaller markets was partially offset by sales declines in Germany and France.

In the Americas, sales fell by 12 percent when adjusted for currency effects. The main driver behind this result was a double-digit decline in sales in the US. The company significantly restricted the distribution of its brands in the wholesale business. In Asia/Pacific, sales fell by 2 percent when adjusted for currency effects. Sales in China decreased 6 percent in currency-adjusted terms, however, in the fourth quarter, sales on the Chinese mainland grew by almost 20 percent on a like-for-like basis, meaning that sales were up also in Asia/Pacific as a whole.

Retail sales up 2 percent but comp sales down 6 percent

Sales in the Group's own retail business were 2 percent above the prior year's level in local currencies in 2016. Currency-adjusted retail comp store sales fell by 6 percent. In the fourth quarter however, Hugo Boss said, development in all regions improved on the previous quarters, which limited the comp store sales decline to 3 percent. At year-end, the number of retail stores was 442. Including shops-in-shops and outlets, the Group's retail store network grew by around 1 percent during the year.

Sales in the wholesale business in local currencies were 9 percent below last year's level, which was mainly due to the discontinuation of business with discount driven retailers. The license business improved by 12 percent, due to the positive sales performance in fragrances.

Menswear sales fell by 2 percent in local currencies and womenswear sales declined by 1 percent. Adjusted EBIDTA margin was 18.3 percent and the gross profit margin remained unchanged on the previous year at 66 percent. EBITDA before special items declined by 17 percent during the year as a whole to 493 million euros (519 million dollars). The adjusted EBITDA margin was 18.3 percent, down 290 basis points on the prior year. The Group's net income at 194 million euros (204 million dollars) was 39 percent lower than the year before.

Proposes dividend, reveal positive outlook

The Managing Board and the Supervisory Board of Hugo Boss will propose a dividend of 2.60 euros (2.74 dollars) per share for fiscal year 2016 to the Annual Shareholders' Meeting.

Largely stable sales and earnings development expected in 2017 and the company will focus on the implementation of measures derived from the realignment of Group strategy decided upon last autumn. The Boss Green and Boss Orange brand lines are being integrated into the Boss core brand. The company expects restructuring measures to have a first positive impact on earnings in 2017 and full effect from 2018 onwards.

Sales in Europe are expected to remain largely stable compared to the prior year. While trends are anticipated to improve for the Americas and the US in particular, sales are still forecasted to decline slightly year-on-year due to the distribution changes in the wholesale business. Sales in Asia, the company said, will increase slightly, helped by growth in China. Sales in the license segment should also increase solidly due to growth in fragrances.

For the Group's own retail business, sales are expected to grow by up to a mid single-digit percentage rate. This forecast is based on the assumption of a like-for-like sales performance between -3% and +3 percent. Store openings should make a low single-digit contribution to growth in own retail. A low to mid single-digit percentage decline in sales is projected for the wholesale business.

A slight increase is forecasted in the gross profit margin due to sales growth in the Group's own retail business and lower inventory write-downs. EBITDA before special items is expected to develop within a range of -3% to +3% compared to the prior year. The Group's net income and earnings per share are expected to grow by a double-digit percentage rate.

In brief
Revenues drop 2,693 mn euros
  • The company expects restructuring measures to have a first positive impact on earnings in 2017 and full effect from 2018 onwards.

Picture: Hugo Boss

Hugo Boss